‘DIY’ corporate lending

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8 March 2010
A few annotations from my current research on corporate lending. According to the European Central Bank (ECB), bank corporate lending in the eurozone fell during December 2009 at an accelerating rate. European banks must be wary, as I believe these are tangible signs that corporations of all sizes are taking countermeasures and are looking at alternative (i.e., non bank-supplied) ways to provision cash to run their businesses. In the wake of the crisis, large corporations got so aggressive in reducing costs and conserving cash that they managed to create for themselves liquidity available to run the business. Indeed, recent ECB surveys report for these firms lower and broadly unchanged need for bank loans. This reflects the large firms’ greater ability to substitute equity or bond issuance for bank financing, the conditions of which became considerably more favorable in the second half of 2009. As for small and medium enterprises (SME) in the eurozone, more than half constantly rely on internal funding (source: ECB), with significant growth trends in trade credit, leasing, hire purchase and factoring, and overdrafts and credit lines. The growth percentage in requests for bank loans remains, instead, single-digit. This goes along with the percentage of SMEs expecting a deterioration in their access to bank loans in the first half of 2010, which continues to be somewhat larger than the percentage of SMEs expecting an improvement. In parallel, I see a number of fund-raising initiatives that dis-intermediate the role of FIs: • State-sponsored supply chain finance programs (e.g., CLEPA; European Bank for Reconstruction and Development; Nafin). • Non-FIs capital lending (e.g., Ups Capital; Sainsbury's; Wal Mart’s “Supplier Alliance Program”; Nestle; HP). • Peer To Peer Lending (e.g., Kiva; The Receivables Exchange). Perhaps naming these “Do It Yourself” corporate lending programs might be too presumptuous, but the signs of disaffection and dis-intermediations are there for banks to watch carefully and take the appropriate countermeasures. As you can appreciate, this post is more of a note-book with personal annotations. More is yet to come, as I progress in my research endeavor. Comments are, as always, very much welcome.

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Asia-Pacific, EMEA, LATAM, North America